Civeo Corp 10-Q

ITEM 1. Financial Statements CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenues: Service and other $ 136,523 $ 140,349 $ 375,928 $ 353,147 Rental 3,217 6,942 13,261 21,057 Product 3,117 872 7,162 4,662 142,857 148,163 396,351 378,866 Costs and expenses: Service and other costs 92,147 93,642 267,051 243,945 Rental costs 3,131 5,072 11,559 16,579 Product costs 2,156 766 5,270 3,826 Selling, general and administrative expenses 13,462 14,334 38,889 42,960 Depreciation and amortization expense 24,820 31,196 72,527 92,974 Impairment expense — — 144,120 5,546 Other operating expense 51 277 755 109 135,767 145,287 540,171 405,939 Operating income (loss) 7,090 2,876 ( 143,820 ) ( 27,073 ) Interest expense ( 3,646 ) ( 7,315 ) ( 13,095 ) ( 20,670 ) Loss on extinguishment of debt ( 383 ) — ( 383 ) — Interest income — 17 20 66 Other income 4,542 2,849 17,209 6,882 Income (loss) before income taxes 7,603 ( 1,573 ) ( 140,069 ) ( 40,795 ) Income tax (expense) benefit ( 180 ) 6,629 8,509 13,963 Net income (loss) 7,423 5,056 ( 131,560 ) ( 26,832 ) Less: Net income attributable to noncontrolling interest 434 60 914 60 Net income (loss) attributable to Civeo Corporation 6,989 4,996 ( 132,474 ) ( 26,892 ) Less: Dividends attributable to Class A preferred shares 472 464 1,411 1,384 Net income (loss) attributable to Civeo common shareholders $ 6,517 $ 4,532 $ ( 133,885 ) $ ( 28,276 ) Per Share Data (see Note 8 ) Basic net income (loss) per share attributable to Civeo Corporation common shareholders $ 0.03 $ 0.02 $ ( 0.79 ) $ ( 0.17 ) Diluted net income (loss) per share attributable to Civeo Corporation common shareholders $ 0.03 $ 0.02 $ ( 0.79 ) $ ( 0.17 ) Weighted average number of common shares outstanding: Basic 169,924 167,640 169,420 166,842 Diluted 170,544 168,282 169,420 166,842 The accompanying notes are an integral part of these financial statements. 4 CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In Thousands) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net income (loss) $ 7,423 $ 5,056 $ ( 131,560 ) $ ( 26,832 ) Other comprehensive income (loss), net of taxes: Foreign currency translation adjustment, net of zero taxes 11,131 ( 12,096 ) ( 8,025 ) ( 5,633 ) Total other comprehensive income (loss), net of taxes 11,131 ( 12,096 ) ( 8,025 ) ( 5,633 ) Comprehensive income (loss) 18,554 ( 7,040 ) ( 139,585 ) ( 32,465 ) Less: Comprehensive income attributable to noncontrolling interest 462 60 928 60 Comprehensive incom e (loss) att ributable to Civeo Corporation $ 18,092 $ ( 7,100 ) $ ( 140,513 ) $ ( 32,525 ) The accompanying notes are an integral part of these financial statements. 5 CIVEO CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands, Excluding Share Amounts) September 30, 2020 December 31, 2019 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 6,938 $ 3,331 Accounts receivable, net 92,754 99,493 Inventories 5,775 5,877 Prepaid expenses 9,369 7,247 Other current assets 7,737 7,904 Assets held for sale — 7,589 Total current assets 122,573 131,441 Property, plant and equipment, net 481,394 590,309 Goodwill 8,086 110,173 Other intangible assets, net 98,907 111,837 Operating lease right-of-use assets 20,426 24,876 Other noncurrent assets 1,550 1,276 Total assets $ 732,936 $ 969,912 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 37,116 $ 36,971 Accrued liabilities 22,229 21,755 Income taxes 379 328 Current portion of long-term debt 32,978 35,080 Deferred revenue 7,801 7,165 Other current liabilities 6,353 8,741 Total current liabilities 106,856 110,040 Long-term debt, less current maturities 236,876 321,792 Deferred income taxes — 9,452 Operating lease liabilities 18,035 21,231 Other noncurrent liabilities 17,557 16,592 Total liabilities 379,324 479,107 Commitments and contingencies (Note 11) Shareholders’ Equity: Preferred shares (Class A Series 1, no par value; 50,000,000 shares authorized, 9,042 , shares issued and outstanding, respectively; aggregate liquidation preference of $ 95,039 and $ 93,627 as of September 30, 2020 and December 31, 2019) 59,540 58,129 Common shares ( no par value; 550,000,000 shares authorized, 173,746,532 shares and 171,656,039 shares issued, respectively, and 170,582,021 shares and 169,556,403 shares outstanding, respectively) — — Additional paid-in capital 1,577,053 1,572,249 Accumulated deficit ( 905,475 ) ( 771,590 ) Common shares held in treasury at cost, 3,164,511 and 2,099,636 shares, respectively ( 6,930 ) ( 5,472 ) Accumulated other comprehensive loss ( 371,212 ) ( 363,173 ) Total Civeo Corporation shareholders’ equity 352,976 490,143 Noncontrolling interest 636 662 Total shareholders’ equity 353,612 490,805 Total liabilities and shareholders’ equity $ 732,936 $ 969,912 The accompanying notes are an integral part of these financial statements. 6 CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (In Thousands) Attributable to Civeo Preferred Shares Common Shares Amount Par Value Additional Paid-in Capital Accumulated Deficit Treasury Shares Accumulated Other Comprehensive Income (Loss) Noncontrolling Interest Total Shareholders’ Equity Balance, June 30, 2019 $ 57,200 $ — $ 1,567,162 $ ( 744,058 ) $ ( 5,472 ) $ ( 364,786 ) $ — $ 510,046 Net income (loss) — — — 4,996 — — 60 5,056 Currency translation adjustment — — — — — ( 12,096 ) — ( 12,096 ) Dividends paid — — — — — — ( 60 ) ( 60 ) Dividends attributable to Class A preferred shares 464 — — ( 464 ) — — — — Share-based compensation — — 2,572 — — — — 2,572 Balance, September 30, 2019 $ 57,664 $ — $ 1,569,734 $ ( 739,526 ) $ ( 5,472 ) $ ( 376,882 ) $ — $ 505,518 Balance, June 30, 2020 $ 59,068 $ — $ 1,575,788 $ ( 911,992 ) $ ( 6,930 ) $ ( 382,315 ) $ 624 $ 334,243 Net income (loss) — — — 6,989 — — 434 7,423 Currency translation adjustment — — — — — 11,103 28 11,131 Dividends paid — — — — — — ( 450 ) ( 450 ) Dividends attributable to Class A preferred shares 472 — — ( 472 ) — — — — Share-based compensation — — 1,265 — — — — 1,265 Balance, September 30, 2020 $ 59,540 $ — $ 1,577,053 $ ( 905,475 ) $ ( 6,930 ) $ ( 371,212 ) $ 636 $ 353,612 Balance, December 31, 2018 $ 56,280 $ — $ 1,562,133 $ ( 710,551 ) $ ( 1,189 ) $ ( 371,249 ) $ — $ 535,424 Net income (loss) — — — ( 26,892 ) — — 60 ( 26,832 ) Currency translation adjustment — — — — — ( 5,633 ) — ( 5,633 ) Dividends paid — — — — — — ( 60 ) ( 60 ) Cumulative effect of implementation of ASU 2014-09 — — — ( 699 ) — — — ( 699 ) Dividends attributable to Class A preferred shares 1,384 — — ( 1,384 ) — — — — Share-based compensation — — 7,601 — ( 4,283 ) — — 3,318 Balance, September 30, 2019 $ 57,664 $ — $ 1,569,734 $ ( 739,526 ) $ ( 5,472 ) $ ( 376,882 ) $ — $ 505,518 Balance, December 31, 2019 $ 58,129 $ — $ 1,572,249 $ ( 771,590 ) $ ( 5,472 ) $ ( 363,173 ) $ 662 $ 490,805 Net income (loss) — — — ( 132,474 ) — — 914 ( 131,560 ) Currency translation adjustment — — — — — ( 8,039 ) 14 ( 8,025 ) Dividends paid — — — — — — ( 954 ) ( 954 ) Dividends attributable to Class A preferred shares 1,411 — — ( 1,411 ) — — — — Share-based compensation — — 4,804 — ( 1,458 ) — — 3,346 Balance, September 30, 2020 $ 59,540 $ — $ 1,577,053 $ ( 905,475 ) $ ( 6,930 ) $ ( 371,212 ) $ 636 $ 353,612 Preferred Shares (in thousands) Common Shares (in thousands) Balance, December 31, 2019 9,042 169,556 Share-based compensation — 1,026 Balance, September 30, 2020 9,042 170,582 The accompanying notes are an integral part of these financial statements. 7 CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Nine Months Ended September 30, 2020 2019 Cash flows from operating activities: Net loss $ ( 131,560 ) $ ( 26,832 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 72,527 92,974 Impairment charges 144,120 5,546 Loss on extinguishment of debt 383 — Deferred income tax benefit ( 8,941 ) ( 14,732 ) Non-cash compensation charge 4,804 7,601 Gains on disposals of assets ( 2,581 ) ( 4,095 ) Provision (benefit) for loss on receivables, net of recoveries 45 ( 39 ) Other, net ( 2,730 ) 2,530 Changes in operating assets and liabilities: Accounts receivable 5,355 ( 30,227 ) Inventories 194 ( 1,175 ) Accounts payable and accrued liabilities 1,247 4,958 Taxes payable 51 345 Other current and noncurrent assets and liabilities, net ( 2,239 ) ( 3,328 ) Net cash flows provided by operating activities 80,675 33,526 Cash flows from investing activities: Capital expenditures ( 6,244 ) ( 25,517 ) Payments related to acquisitions, net of cash acquired — ( 16,439 ) Proceeds from disposition of property, plant and equipment 3,336 5,482 Other, net 4,619 1,762 Net cash flows provided by (used in) investing activities 1,711 ( 34,712 ) Cash flows from financing activities: Revolving credit borrowings 324,611 340,494 Revolving credit repayments ( 369,122 ) ( 310,946 ) Term loan repayments ( 31,092 ) ( 26,085 ) Debt issuance costs ( 2,583 ) ( 1,950 ) Taxes paid on vested shares ( 1,458 ) ( 4,283 ) Net cash flows used in financing activities ( 79,644 ) ( 2,770 ) Effect of exchange rate changes on cash 865 ( 344 ) Net change in cash and cash equivalents 3,607 ( 4,300 ) Cash and cash equivalents, beginning of period 3,331 12,372 Cash and cash equivalents, end of period $ 6,938 $ 8,072 Non-cash financing activities: Preferred dividends paid-in-kind $ 1,411 $ 1,384 The accompanying notes are an integral part of these financial statements. 8 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Description of the Business We are a hospitality company servicing the natural resources industry in Canada, Australia and the U.S. We provide a full suite of hospitality services for our guests, including lodging, food service, housekeeping and maintenance at accommodation facilities that we or our customers own. In many cases, we provide services that support the day-to-day operations of accommodation facilities, such as laundry, facility management and maintenance, water and wastewater treatment, power generation, communication systems, security and logistics. We also offer development activities for workforce accommodation facilities, including site selection, permitting, engineering and design, manufacturing management and site construction, along with providing hospitality services once the facility is constructed. We primarily operate in some of the world’s most active oil, metallurgical (met) coal and iron ore producing regions, and our customers include major and independent oil and gas companies, mining companies, engineering companies and oilfield and mining service companies. We operate in three principal reportable business segments – Canada, Australia and the U.S. Basis of Presentation Unless otherwise stated or the context otherwise indicates: (i) all references in these consolidated financial statements to “Civeo,” “us,” “our” or “we” refer to Civeo Corporation and its consolidated subsidiaries; and (ii) all references in this report to “dollars” or “$” are to U.S. dollars. The accompanying unaudited consolidated financial statements of Civeo have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC) pertaining to interim financial information. Certain information in footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles (GAAP) has been condensed or omitted pursuant to those rules and regulations. The unaudited financial statements included in this report reflect all the adjustments, consisting of normal recurring adjustments, which Civeo considers necessary for a fair presentation of the results of operations for the interim periods covered and for the financial condition of Civeo at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the full year. The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. If the underlying estimates and assumptions upon which the financial statements are based change in future periods, actual amounts may differ from those included in the accompanying consolidated financial statements. The financial statements included in this report should be read in conjunction with our audited financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2019. 2. RECENT ACCOUNTING PRONOUNCEMENTS From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB), which are adopted by us as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards or other guidance updates, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” (ASU 2016-13). This new standard changes how companies measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 is effective for financial statements issued for reporting periods beginning after December 15, 2019 and interim periods within the reporting periods. We adopted ASU 2016-13 as of January 1, 2020. The adoption of this new standard did not have a material impact on our consolidated financial statements. 9 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. REVENUE The following table disaggregates our revenue by our three reportable segments: Canada, Australia and the U.S., and major categories for the periods indicated (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Canada Accommodation revenues $ 49,798 $ 79,939 $ 156,068 $ 203,774 Mobile facility rental revenues 13,135 3,048 21,715 5,648 Food service and other services revenues 8,852 8,084 26,336 25,507 Manufacturing revenues — — — 1,014 Total Canada revenues 71,785 91,071 204,119 235,943 Australia Accommodation revenues $ 39,470 $ 33,056 $ 106,988 $ 92,473 Food service and other services revenues 25,215 14,687 63,881 14,687 Total Australia revenues 64,685 47,743 170,869 107,160 U.S. Accommodation revenues $ 394 $ 1,655 $ 1,892 $ 11,354 Mobile facility rental revenues 3,218 6,952 13,275 21,175 Manufacturing revenues 2,772 714 6,159 3,116 Food service and other services revenues 3 28 37 118 Total U.S. revenues 6,387 9,349 21,363 35,763 Total revenues $ 142,857 $ 148,163 $ 396,351 $ 378,866 Our payment terms vary by the type and location of our customer and the products or services offered. The term between invoicing and when our performance obligations are satisfied is not significant. Payment terms are generally within 30 days. We do not have significant financing components or significant payment terms. As of September 30, 2020, for contracts that are greater than one year, the table below discloses the estimated revenues related to performance obligations that are unsatisfied (or partially unsatisfied) and when we expect to recognize the revenue (in thousands): For the years ending December 31, 2020 2021 2022 Thereafter Total Revenue expected to be recognized as of September 30, 2020 $ 33,002 $ 61,031 $ 29,120 $ 11,820 $ 134,973 4. FAIR VALUE MEASUREMENTS Our financial instruments consist of cash and cash equivalents, receivables, payables and debt instruments. We believe that the carrying values of these instruments on the accompanying consolidated balance sheets approximate their fair values. As of September 30, 2020 and December 31, 2019, we believe the carrying value of our floating-rate debt outstanding under our term loans and revolving credit facilities approximates fair value because the terms include short-term interest rates and exclude penalties for prepayment. We estimated the fair value of our floating-rate term loan and revolving credit facilities using significant other observable inputs, representative of a Level 2 fair value measurement, including terms and credit spreads for these loans. During the first quarter of 2020 and the second and fourth quarters of 2019, we wrote down certain long-lived assets to fair value. We also recorded goodwill impairment charges related to one of our reporting units during the first quarter of 2020 and one of our reporting units during the fourth quarter of 2019. Our estimates of fair value required us to use significant unobservable inputs, representative of Level 3 fair value measurements, including numerous assumptions with respect to future 10 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) circumstances that might directly impact each of the relevant asset groups’ operations in the future and are therefore uncertain. We estimated the fair value when conducting the goodwill impairment and long-lived asset impairment tests primarily using an income approach. The discount rates used to value our reporting units for the interim goodwill impairment test, as well as the Canadian and U.S. segments long-lived asset impairment analysis ranged between 10.5 % and 14.0 %. These assumptions with respect to future circumstances included future cash flows, oil, met coal and natural gas prices, anticipated spending by our customers, the cost of capital, and industry and/or local market conditions. During the fourth quarter of 2019, our estimate of fair value of corporate office space in Canada and during the second quarter of 2019, our estimate of fair value of land in Australia, were based on appraisals from third parties. See Note 6 – Impairment Charges for further information. During the third quarter of 2019, we acquired Action Industrial Catering (Action) and recorded the assets acquired and liabilities assumed at fair value. Determining the fair value of these assets and liabilities required the exercise of significant judgment, including the amount and timing of expected future cash flows, long-term growth rates and discount rates. The cash flows employed in the valuation are based on our best estimates of future sales, earnings and cash flows after considering factors such as general market conditions, expected future customer orders, contracts with suppliers, labor costs, changes in working capital, long-term business plans and recent operating performance. See Note 7 – Acquisitions for further information. 5. DETAILS OF SELECTED BALANCE SHEET ACCOUNTS Additional information regarding selected balance sheet accounts at September 30, 2020 and December 31, 2019 is presented below (in thousands): September 30, 2020 December 31, 2019 Accounts receivable, net: Trade $ 68,848 $ 76,370 Unbilled revenue 21,819 23,041 Other (1) 2,357 335 Total accounts receivable 93,024 99,746 Allowance for credit losses ( 270 ) ( 253 ) Total accounts receivable, net $ 92,754 $ 99,493 (1) As of September 30, 2020, Other accounts receivable includes a $ 2.4 million receivable related to the Canada Emergency Wage Subsidy (CEWS), a subsidy implemented by the Canadian government in response to the COVID-19 pandemic. Other income related to the CEWS during the three and nine months ended September 30, 2020 was $ 3.6 million and $ 9.7 million, respectively. September 30, 2020 December 31, 2019 Inventories: Finished goods and purchased products $ 4,538 $ 3,982 Work in process 18 813 Raw materials 1,219 1,082 Total inventories $ 5,775 $ 5,877 11 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Estimated Useful Life (in years) September 30, 2020 December 31, 2019 Property, plant and equipment, net: Land $ 47,049 $ 43,147 Accommodations assets 3 — 15 1,651,178 1,696,425 Buildings and leasehold improvements 7 — 20 33,714 26,108 Machinery and equipment 4 — 15 12,110 12,060 Office furniture and equipment 3 — 7 59,432 58,005 Vehicles 3 — 5 14,711 14,604 Construction in progress 5,551 4,286 Total property, plant and equipment 1,823,745 1,854,635 Accumulated depreciation ( 1,342,351 ) ( 1,264,326 ) Total property, plant and equipment, net $ 481,394 $ 590,309 During the second quarter of 2020, we reclassified $ 6.6 million of assets held for sale back into property, plant and equipment due to no longer meeting the accounting requirements of held for sale assets. September 30, 2020 December 31, 2019 Accrued liabilities: Accrued compensation $ 17,350 $ 17,169 Accrued taxes, other than income taxes 3,113 3,152 Other 1,766 1,434 Total accrued liabilities $ 22,229 $ 21,755 6. IMPAIRMENT CHARGES Quarter ended March 31, 2020 . During the first quarter of 2020, we recorded impairment expense related to goodwill and long-lived assets. The spread of the COVID-19 coronavirus (COVID-19) and the response thereto during the first quarter of 2020 negatively impacted the global economy. The resulting unprecedented decline in oil demand, coupled with disagreements between Saudi Arabia and Russia about production limits, resulted in a collapse of global oil prices in March 2020, thereby creating unprecedented downward pressure on stock prices in the energy industry, particularly small-cap companies with operations in the U.S. and Canada, such as Civeo. As a result, we experienced a sustained reduction of our share price during the first quarter of 2020. Our market capitalization implied an enterprise value which was significantly less than the sum of the estimated fair values of our reporting units, and we determined that an indicator of a goodwill impairment was present as of March 31, 2020. Accordingly, we performed an interim goodwill impairment test as of March 31, 2020, and the carrying amount of our Canadian reporting unit exceeded the reporting unit's fair value. Based on the results of the impairment test, we reduced the value of our goodwill in our Canadian reporting unit to zero and recognized impairment expense in the first quarter of 2020 of $ 93.6 million. Furthermore, as a result of the decline in global oil prices and forecasts for a potentially protracted period of lower prices, as well as the goodwill impairment in our Canadian segment, we determined all asset groups within this segment had experienced a trigger that indicated that the carrying values might not be recoverable. Accordingly, we assessed the carrying value of each asset group to determine if it continued to be recoverable based on estimated future cash flows. Based on the assessment, the carrying values of certain asset groups were determined to not be fully recoverable, and we proceeded to compare the estimated fair value of these asset groups to their respective carrying values. As a result, certain asset groups were written down to their estimated fair values of $ 43.5 million and we recorded impairment expense of $ 38.1 million related to certain long-lived assets in our Canadian segment. Also, as a result of the decline in global oil prices and forecasts for a potentially protracted period of lower prices, we reviewed all asset groups in our U.S. segment to determine if an indicator of impairment had occurred that would indicate that the carrying values of the asset groups in the segment might not be recoverable. We determined that certain asset groups within the segment had experienced an indicator of impairment, and thus we assessed the carrying values of our long-lived assets in 12 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) the U.S. to determine if they continued to be recoverable based on estimated future cash flows. Based on the assessment, the carrying values of certain of our U.S. asset groups were determined to not be recoverable, and we proceeded to compare the estimated fair values of the asset groups to their respective carrying values. Accordingly, these assets were written down to their estimated fair values of $ 12.5 million. We recorded impairment expense of $ 12.4 million during the first quarter of 2020 related to our U.S. segment. Quarter ended June 30, 2019 . During the second quarter of 2019, we identified indicators that certain long-lived assets in Australia may be impaired due to market developments, including the non-renewal of certain land development approval agreements. We assessed the carrying values of the related assets to determine if they continued to be recoverable based on estimated future cash flows. Based on the assessment, the carrying values were determined to not be fully recoverable, and we proceeded to compare the estimated fair value of the assets to their respective carrying values. Accordingly, the assets were written down to their estimated fair values of $ 0.5 million. As a result of the analysis described above, we recorded impairment expense of $ 4.5 million. Additionally, during the second quarter of 2019, we identified a liability related to an asset retirement obligation (ARO) at one of our villages in Australia that should have been recorded in 2011. We determined that the error was not material to our previously issued financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, and therefore, corrected the error in the second quarter of 2019. Specifically, we recorded the following amounts in the second quarter 2019 unaudited consolidated statement of operations related to prior periods: (i) additional accretion expense related to the ARO of $ 0.9 million, (ii) additional depreciation and amortization expense of $ 0.5 million related to amortization of the related asset retirement cost and (iii) additional impairment expense related to the impairment of the asset retirement cost of $ 1.0 million offset by recognition of an ARO liability totaling $ 2.3 million as of June 30, 2019. 7. ACQUISITIONS Action On July 1, 2019, we acquired Action, a provider of catering and managed services to the mining industry in Western Australia. We funded the purchase price of $ 16.9 million in cash through a combination of cash on hand and borrowings under our revolving credit facility. Action's operations are reported as part of our Australia reporting business segment beginning on July 1, 2019, the date of acquisition. This acquisition was accounted for in accordance with the acquisition method of accounting for business combinations, which required us to record the assets acquired and the liabilities assumed at their fair values at July 1, 2019. Our estimates of the fair value for such assets and liabilities required significant assumptions and judgment. Based on the final purchase price allocation, intangible assets acquired totaled $ 8.4 million and consisted primarily of customer contracts and a trade name. In addition, we recognized goodwill of $ 7.9 million. Noralta On April 2, 2018, we acquired Noralta Lodge Ltd. (Noralta). During the second quarter of 2020, $ 5.0 million in cash was released to us from escrow to cover certain agreed upon indemnification claims. As a result of this settlement, we recorded $ 4.7 million in Other income in the accompanying unaudited consolidated statements of operations for the nine months ended September 30, 2020. 13 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. EARNINGS PER SHARE We calculate basic and diluted earnings per share by applying the two-class method because we have participating securities in the form of Class A preferred shares. Participating securities are allocated a proportional share of net income determined by dividing total weighted average participating securities by the sum of total weighted average common shares and participating securities. We also apply the treasury stock method with respect to certain share-based awards in the calculation of diluted earnings per share, if dilutive. The calculation of earnings per share attributable to Civeo common shareholders is presented below for the periods indicated (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Numerator: Net income (loss) attributable to Civeo common shareholders $ 6,517 $ 4,532 $ ( 133,885 ) $ ( 28,276 ) Less: income allocated to participating securities ( 944 ) ( 653 ) — — Basic net income (loss) attributable to Civeo Corporation common shareholders $ 5,573 $ 3,879 $ ( 133,885 ) $ ( 28,276 ) Add: undistributed income attributable to participating securities 944 653 — — Less: undistributed income reallocated to participating securities ( 942 ) ( 651 ) — — Diluted net income (loss) attributable to Civeo Corporation common shareholders $ 5,575 $ 3,881 $ ( 133,885 ) $ ( 28,276 ) Denominator: Weighted average shares outstanding - basic 169,924 167,640 169,420 166,842 Dilutive shares - share-based awards 620 642 — — Weighted average shares outstanding - diluted 170,544 168,282 169,420 166,842 Basic net income (loss) per share attributable to Civeo Corporation common shareholders (1) $ 0.03 $ 0.02 $ ( 0.79 ) $ ( 0.17 ) Diluted net income (loss) per share attributable to Civeo Corporation common shareholders (1) $ 0.03 $ 0.02 $ ( 0.79 ) $ ( 0.17 ) (1) Computations may reflect rounding adjustments. For the three months ended September 30, 2020 and 2019, we excluded 2.4 million and 4.5 million share-based awards, respectively, from the computation of diluted earnings per share because their effect was anti-dilutive. When an entity has a net loss from continuing operations, it is prohibited from including potential common shares in the computation of diluted per share amounts. For the nine months ended September 30, 2020 and 2019, we excluded from the computation of diluted loss per share 4.9 million and 6.9 million share-based awards, respectively, since the effect would have been anti-dilutive. Additionally, for the three and nine months ended September 30, 2020 and 2019, we excluded from the computation the impact of converting the Preferred Shares into 28.8 million and 28.2 million common shares, respectively, since the effect would have been anti-dilutive. 14 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. DEBT As of September 30, 2020 and December 31, 2019, long-term debt consisted of the following (in thousands): September 30, 2020 December 31, 2019 Canadian term loan, which matures on May 30, 2023; 3.125 % of aggregate principal repayable per quarter; weighted average interest rate of 4.0 % for the nine month period ended September 30, 2020 $ 187,371 $ 224,963 U.S. revolving credit facility, which matures on May 30, 2023, weighted average interest rate of 5.6 % for the nine month period ended September 30, 2020 — — Canadian revolving credit facility, which matures on May 30, 2023, weighted average interest rate of 4.2 % for the nine month period ended September 30, 2020 55,478 134,117 Australian revolving credit facility, which matures on May 30, 2023, weighted average interest rate of 3.6 % for the nine month period ended September 30, 2020 29,697 — 272,546 359,080 Less: Unamortized debt issuance costs 2,692 2,208 Total debt 269,854 356,872 Less: Current portion of long-term debt, including unamortized debt issuance costs, net 32,978 35,080 Long-term debt, less current maturities $ 236,876 $ 321,792 We did not have any capitalized interest to net against interest expense for the three and nine months ended September 30, 2020 or 2019. Amended Credit Agreement As of December 31, 2019, our Credit Agreement, as then amended, provided for: (i) a $ 263.5 million revolving credit facility scheduled to mature on November 30, 2021 for certain lenders, allocated as follows: (A) a $ 20.0 million senior secured revolving credit facility in favor of certain of our U.S. subsidiaries, as borrowers; (B) a $ 183.5 million senior secured revolving credit facility in favor of Civeo and certain of our Canadian subsidiaries, as borrowers; and (C) a $ 60.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower; and (ii) a $ 285.4 million term loan facility scheduled to mature on November 30, 2021 for certain lenders in favor of Civeo. On September 3, 2020, the third amendment to the Credit Agreement (as so amended, the Amended Credit Agreement) became effective, which, among other things: • Extended the maturity date by 18 months of the commitments and loans of each lender remaining a lender following the effectiveness of the Amended Credit Agreement to May 30, 2023. Certain lenders are not extending the maturity date of their commitments and loans; the loans of the non-extending lenders were paid in full primarily with borrowings under the facility, and their commitments terminated on the date the Amended Credit Agreement became effective. • Increased the margin applicable to loans and the commitment fee payable on the commitments of the lenders. Prior to entering into the Amended Credit Agreement, (i) the margin applicable to Eurocurrency loans, BBSY rate loans and B/A loans ranged from 2.25 % to 4.00 %, (ii) the margin applicable to ABR loans, Canadian Prime rate loans and U.S. Base rate loans ranged from 1.25 % to 3.00 % and (iii) the commitment fee ranged from 0.51 % to 0.90 %, in each case increasing as the total leverage ratio of the parent borrower and its subsidiaries increased from less than 2.00 to 1.00 to greater than 4.00 to 1.00. Following entry into the Amended Credit Agreement, these ranges have increased to (i) 3.50 % to 4.50 %, (ii) 2.50 % to 3.50 % and (iii) 0.875 % to 1.125 %, respectively, in each case as the total leverage ratio increases from less than 2.50 to 1.00 to greater than 3.50 to 1.00. 15 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) • Decreased (i) the U.S. revolving commitments from $ 20.0 million to $ 10.0 million, (ii) the maximum permitted amount of U.S. L/C exposure from $ 15.0 million to $ 10.0 million to match the reduction in the U.S. revolving commitments, (iii) the Canadian revolving commitments from $ 183.5 million to $ 122.3 million and (iv) the Australian revolving commitments from $ 60.0 million to $ 35.0 million. We are required to maintain, if a qualified offering of indebtedness with gross proceeds in excess of $ 150 million has been consummated, a maximum leverage ratio of 4.00 to 1.00 and, if such qualified offering has not been consummated, a maximum leverage ratio not to exceed the ratios set forth in the following table: Period Ended Maximum Leverage Ratio September 30, 2020 3.75 : 1.00 December 31, 2020 and thereafter 3.50 : 1.00 U.S. dollar amounts outstanding under the facilities provided by the Amended Credit Agreement bear interest at a variable rate equal to the London Inter-Bank Offered Rate (LIBOR) plus a margin of 3.50 % to 4.50 %, or a base rate plus 2.50 % to 3.50 %, in each case based on a ratio of our total debt to consolidated EBITDA (as defined in the Amended Credit Agreement). Canadian dollar amounts outstanding bear interest at a variable rate equal to a B/A Discount Rate (as defined in the Amended Credit Agreement) based on the Canadian Dollar Offered Rate (CDOR) plus a margin of 3.50 % to 4.50 %, or a Canadian Prime rate plus a margin of 2.50 % to 3.50 %, in each case based on a ratio of our total debt to consolidated EBITDA. Australian dollar amounts outstanding under the Amended Credit Agreement bear interest at a variable rate equal to the Bank Bill Swap Bid Rate plus a margin of 3.50 % to 4.50 %, based on a ratio of our total debt to consolidated EBITDA. The future transitions from LIBOR and CDOR as interest rate benchmarks is addressed in the Amended Credit Agreement and at such time the transition from LIBOR or CDOR takes place, we will endeavor with the administrative agent to establish an alternate rate of interest to LIBOR or CDOR that gives due consideration to (1) the then prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time for the replacement of LIBOR and (2) any evolving or then existing convention for similar Canadian Dollar denominated syndicated credit facilities for the replacement of CDOR. The Amended Credit Agreement contains customary affirmative and negative covenants that, among other things, limit or restrict: (i) indebtedness, liens and fundamental changes; (ii) asset sales; (iii) acquisitions of margin stock; (iv) specified acquisitions; (v) certain restrictive agreements; (vi) transactions with affiliates; and (vii) investments and other restricted payments, including dividends and other distributions. In addition, we must maintain an interest coverage ratio, defined as the ratio of consolidated EBITDA to consolidated interest expense, of at least 3.0 to 1.0 and our maximum leverage ratio, defined as the ratio of total debt to consolidated EBITDA, of no greater than 3.75 to 1.0 (as of September 30, 2020). As noted above, the permitted maximum leverage ratio decreases to 3.5 to 1.0 beginning December 31, 2020. Following a qualified offering of indebtedness with gross proceeds in excess of $ 150 million, we will be required to maintain a maximum senior secured ratio less than 2.50 to 1.0. Each of the factors considered in the calculations of these ratios are defined in the Amended Credit Agreement. EBITDA and consolidated interest, as defined, exclude goodwill and asset impairments, debt discount amortization, amortization of intangibles and other non-cash charges. We were in compliance with our covenants as of September 30, 2020. Borrowings under the Amended Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries. The obligations under the Amended Credit Agreement are guaranteed by our significant subsidiaries. As of September 30, 2020, we had eight lenders that were parties to the Amended Credit Agreement, with total commitments (including both revolving commitments and term commitments) ranging from $ 22.4 million to $ 71.1 million. As of September 30, 2020, we had outstanding letters of credit of $ 0.3 million under the U.S. facility, $ 0.5 million under the Australian facility and $ 2.6 million under the Canadian facility. 10. INCOME TAXES Our operations are conducted through various subsidiaries in a number of countries throughout the world. We have provided for income taxes based upon the tax laws and rates in the countries in which operations are conducted and income is earned. We operate in three jurisdictions, Canada, Australia and the U.S., where statutory tax rates range from 21 % to 30 %. Our effective tax rate will vary from period to period based on changes in earnings mix between these different jurisdictions. 16 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) We compute our quarterly taxes under the effective tax rate method by applying an anticipated annual effective rate to our year-to-date income, except for significant unusual or extraordinary transactions. Income taxes for any significant and unusual or extraordinary transactions are computed and recorded in the period in which the specific transaction occurs. As of September 30, 2020, Canada and the U.S. were considered loss jurisdictions for tax accounting purposes and were removed from the annual effective tax rate computation for purposes of computing the interim tax provision. As of September 30, 2019, the U.S. was considered a loss jurisdiction for tax accounting purposes and was removed from the 2019 annual effective tax rate computation for purposes of computing the interim tax provision. Our income tax expense for the three months ended September 30, 2020 totaled $ 0.2 million, or 2.4 % of pretax loss, compared to a benefit of $ 6.6 million, or 421.4 % of pretax income, for the three months ended September 30, 2019. For the three months ended September 30, 2020, we recorded a tax expense of $ 0.1 million related to foreign withholding and U.S. state income taxes. Additionally, the effective tax rate for the three months ended September 30, 2019 was impacted by a tax benefit of $ 3.0 million related to a reduction in the Alberta, Canada income tax rate, as well as a $ 2.1 million tax benefit related to the change in the valuation allowance in Australia resulting from the acquisition of Action. Under ASC 740-270, "Accounting for Income Taxes," the quarterly tax provision is based on our current estimate of the annual effective tax rate less the prior quarter's year-to-date provision. Our income tax benefit for the nine months ended September 30, 2020 totaled $ 8.5 million, or 6.1 % of pretax loss, compared to a benefit of $ 14.0 million, or 34.2 % of pretax loss, for the nine months ended September 30, 2019. Our effective tax rate for the nine months ended September 30, 2020 was impacted by considering Canada and the U.S. loss jurisdictions. Additionally, although Australia was not considered a loss jurisdiction for the nine months ended September 30, 2020, our effective tax rate was impacted by utilization of deferred tax assets and a release of the corresponding valuation allowance in Australia, resulting in no income tax expense for that jurisdiction. For the nine months ended September 30, 2020, we recorded a deferred tax benefit of $ 9.0 million, offset by a valuation allowance of $ 0.1 million, against the Canadian net deferred tax assets. Our effective tax rate for the nine months ended September 30, 2019 was impacted by a reduction in the Alberta, Canada income tax rate, as well as a change in the valuation allowance in Australia resulting from the acquisition of Action. 11. COMMITMENTS AND CONTINGENCIES We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including warranty and product liability claims as a result of our products or operations. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. 12. ACCUMULATED OTHER COMPREHENSIVE LOSS Our accumulated other comprehensive loss increased $ 8.0 million from $ 363.2 million at December 31, 2019 to $ 371.2 million at September 30, 2020, as a result of foreign currency exchange rate fluctuations. Changes in other comprehensive loss during the nine months of 2020 were primarily driven by the Australian dollar increasing in value compared to the U.S. dollar, partially offset by the Canadian dollar decreasing in value compared to the U.S. dollar. Excluding intercompany balances, our Canadian dollar and Australian dollar functional currency net assets totaled approximately C$ 0.2 billion and A$ 0.3 billion, respectively, at September 30, 2020. 17 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13. GOODWILL Changes in the carrying amount of goodwill from December 31, 2019 to September 30, 2020 are as follows (in thousands): Canada Australia U.S. Total Goodwill, net of $ 19.9 million accumulated impairment loss as of December 31, 2019 $ 102,238 $ 7,935 $ — $ 110,173 Foreign currency translation ( 8,632 ) 151 — ( 8,481 ) Goodwill impairment (1) ( 93,606 ) — — ( 93,606 ) Goodwill, net of $ 113.5 million accumulated impairment loss as of September 30, 2020 $ — $ 8,086 $ — $ 8,086 (1) See Note 6 – Impairment Charges for further information. 14. SHARE-BASED COMPENSATION Certain key employees and non-employee directors participate in the Amended and Restated 2014 Equity Participation Plan of Civeo Corporation (the Civeo Plan). The Civeo Plan authorizes our Board of Directors and the Compensation Committee of our Board of Directors to approve grants of options, awards of restricted shares, performance awards, phantom share awards and dividend equivalents, awards of deferred shares, and share payments to our employees and non-employee directors. No more than 28.7 million Civeo common shares are authorized to be issued under the Civeo Plan. Outstanding Awards Restricted Share Awards / Restricted Share Units / Deferred Share Awards. Compensation expense associated with restricted share awards, restricted share units and deferred share awards recognized in the three months ended September 30, 2020 and 2019 totaled $ 0.7 million and $ 1.5 million, respectively. Compensation expense associated with restricted share awards, restricted share units and deferred share awards recognized in the nine months ended September 30, 2020 and 2019 totaled $ 2.7 million and $ 4.3 million, respectively. The total fair value of restricted share awards, restricted share units and deferred share awards that vested during the three months ended September 30, 2020 and 2019 was less than $ 0.1 million. The total fair value of restricted share awards, restricted share units and deferred share awards that vested during the nine months ended September 30, 2020 and 2019 was $ 2.6 million and $ 4.0 million, respectively. At September 30, 2020, unrecognized compensation cost related to restricted share awards, restricted share units and deferred share awards was $ 2.0 million, which is expected to be recognized over a weighted average period of 1.0 years. Phantom Share Awards. On February 25, 2020, we granted 3,741,094 phantom share awards under the Civeo Plan, which vest in three equal annual installments beginning on February 25, 2021. We also granted 1,221,725 phantom share awards under the Canadian Long-Term Incentive Plan, which vest in three equal annual installments beginning on February 25, 2021. During the three months ended September 30, 2020 and 2019, we recognized compensation expense associated with phantom shares totaling $ 0.5 million and $ 0.1 million, respectively. During the nine months ended September 30, 2020 and 2019, we recognized compensation expense associated with phantom shares totaling $ 1.2 million and $ 3.5 million, respectively. At September 30, 2020, unrecognized compensation cost related to phantom shares was $ 2.9 million, as remeasured at September 30, 2020, which is expected to be recognized over a weighted average period of 2.3 years. Performance Awards. During the three months ended September 30, 2020 and 2019, we recognized compensation expense associated with performance awards totaling $ 0.6 million and $ 1.1 million, respectively. During the nine months ended September 30, 2020 and 2019, we recognized compensation expense associated with performance awards totaling $ 2.1 million and $ 3.3 million, respectively. The total fair value of performance share awards that vested during the three months ended September 30, 2020 and 2019 was zero . The total fair value of performance share awards that vested during the nine months ended September 30, 2020 and 2019 was $ 1.9 million and $ 10.1 million, respectively. 18 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) At September 30, 2020, unrecognized compensation cost related to performance shares was $ 2.2 million, which is expected to be recognized over a weighted average period of 1.2 years. 15. SEGMENT AND RELATED INFORMATION In accordance with current accounting standards regarding disclosures about segments of an enterprise and related information, we have identified the following reportable segments: Canada, Australia and U.S., which represent our strategic focus on hospitality services and workforce accommodations. Financial information by business segment for each of the three and nine months ended September 30, 2020 and 2019 is summarized in the following table (in thousands): Total revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Three months ended September 30, 2020 Canada $ 71,785 $ 13,266 $ 1,007 $ 362 $ 691,634 Australia 64,685 10,739 9,890 1,825 266,591 U.S. 6,387 747 ( 3,197 ) 84 27,017 Corporate and eliminations — 68 ( 610 ) 126 ( 252,306 ) Total $ 142,857 $ 24,820 $ 7,090 $ 2,397 $ 732,936 Three months ended September 30, 2019 Canada $ 91,071 $ 18,219 $ 2,919 $ 2,851 $ 843,818 Australia 47,743 9,576 4,662 675 279,386 U.S. 9,349 1,611 ( 2,167 ) 576 51,376 Corporate and eliminations — 1,790 ( 2,538 ) 207 ( 163,757 ) Total $ 148,163 $ 31,196 $ 2,876 $ 4,309 $ 1,010,823 Nine months ended September 30, 2020 Canada $ 204,119 $ 39,812 $ ( 142,343 ) $ 1,203 $ 691,634 Australia 170,869 29,767 24,245 3,036 266,591 United States 21,363 2,525 ( 19,954 ) 1,468 27,017 Corporate and eliminations — 423 ( 5,768 ) 537 ( 252,306 ) Total $ 396,351 $ 72,527 $ ( 143,820 ) $ 6,244 $ 732,936 Nine months ended September 30, 2019 Canada $ 235,943 $ 50,574 $ ( 14,437 ) $ 19,294 $ 843,818 Australia 107,160 29,401 ( 1,302 ) 2,508 279,386 United States 35,763 7,713 ( 4,484 ) 2,870 51,376 Corporate and eliminations — 5,286 ( 6,850 ) 845 ( 163,757 ) Total $ 378,866 $ 92,974 $ ( 27,073 ) $ 25,517 $ 1,010,823 19 Cautionary Statement Regarding Forward-Looking Statements This quarterly report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act). The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. The forward-looking statements can be identified by the use of forward-looking terminology including “may,” “expect,” “anticipate,” “estimate,” “continue,” “believe” or other similar words. The forward-looking statements in this report include, but are not limited to, the statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” relating to our expectations about the macroeconomic environment and industry conditions, including the impact of COVID-19 and the response thereto and the decline in the price of and demand for oil, as well as our expectations about capital expenditures in 2020 and beliefs with respect to liquidity needs, including our ability to remain in compliance with our financial covenants. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors. For a discussion of known material factors that could affect our results, please refer to "Risk Factors" included in Part II, Item 1A of this report, “Risk Factors,” “Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2019 and our subsequent SEC filings. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may differ materially from those expected, estimated or projected. Our management believes these forward-looking statements are reasonable. However, you should not place undue reliance on these forward-looking statements, which are based only on our current expectations and are not guarantees of future performance. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any of them in light of new information, future events or otherwise, except to the extent required by applicable law. In addition, in certain places in this quarterly report, we refer to reports published by third parties that purport to describe trends or developments in the energy industry. We do so for the convenience of our shareholders and in an effort to provide information available in the market that will assist our investors in a better understanding of the market environment in which we operate. However, we specifically disclaim any responsibility for the accuracy and completeness of such information and undertake no obligation to update such information.